An Arabic term (تواطؤ) that translates as collusion or pre-arrangement. In Islamic finance parlance, this involves an implicit agreement between the parties to a contract (aqd) to turn around a shari’a violation. The contract will appear shari’a-compliant in form, though it is otherwise in substance.
For example, a bank may agree to extend an interest-free loan (qardh al-hasan) to a customer, with the two parties implicitly agreeing that the loan will be paid off with an extra amount to the principal (asl al-qardh). This is tantamount to an interest-bearing loan (qardh ribawi), irrespective of the formal agreement that pretends it is otherwise. This act of collusion, per se, is impermissible, and the lender and borrower must abide by shari’a rules and principles by shunning away the payment and receipt of any extra amount or benefit (riba) on a loan.
